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Case Summary

When does the requirement to work excess hours become unreasonable?

The Federal Court has handed down a rare decision explaining exactly what constitutes ‘reasonable additional hours’ under the Fair Work Act 2009 (Cth). In this case, which is particularly relevant to those in the manufacturing industry, the Federal Court focussed on whether the industry standard of working 50 hours a week was ‘reasonable’ and is a timely reminder of what employers must consider when assessing the reasonableness of additional hours.

Nina Hoang
Published:

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The case in-brief

A Ghanaian immigrant employee secured work with Dick Stone within 3 weeks of his arrival in Australia.

Under his employment contract (which lacked detail), he was required to work 50 ordinary hours per week (which included reasonable additional hours).

The contract failed to mention the employee’s pay rate and had no mention of any entitlement to overtime.

The Union brought an application alleging Dick Stone:

  1. Failed to pay overtime for hours in excess of 38 hours per week and outside of the span of hours; and
  2. That it was an unreasonable request to require the employee to work 50 ordinary hours per week.

Although there were other causes of action, these were the main takeaways from this case.

Could Dick Stone offset the owing overtime?

Dick Stone attempted to claim overtime was only applicable if it was outside the span of hours (even though this had never been communicated to the employee verbally or in writing) on the basis that working 50 hours was ‘reasonable.’

After conceding there were outstanding overtime payments, Dick Stone argued these entitlements were offset by the payment of a ‘blended rate’ which incorporated the payment for ordinary hours and overtime into a single hourly payment.

The Court found that Dick Stone was unable to use their ‘blended rate’ to offset any outstanding overtime payments because neither the ‘contractual principle’ nor ‘designation principle’ applied:

  1. The ‘contractual principle’ was only applicable if there was a written agreement between Dick Stone and the employee which stated money will be paid and received for specific purposes such as payment of overtime entitlements – the employment contract was entirely silent on this.
  2. The ‘designation principle’ requires employers to make the purpose of the previous payments clear to the employee, to appropriate the payment for that purpose. As the contract stated the pay rate was for the purpose of paying ordinary hours (as an intention to pay for overtime was never communicated to the employee), Dick Stone could not unilaterally decide to appropriate the payment retrospectively to discharge any outstanding amounts of overtime owed to the employee.

Accordingly, there was no lawful way for Dick Stone to use the ‘blended rate’ to offset their underpayment.

Had Dick Stone used a properly drafted offset clause and paid significantly above the Award this would likely not have been an issue.

Is the request to work 50 hours a week reasonable?

The Court established that whether an arrangement is reasonable or not will depend on the factors in section 62(3) of the Fair Work Act 2009 (Cth) applied in the context of an employee’s individual circumstances.

The Court considered the entire context of the employee’s work arrangements with Dick Stone but found the following factors particularly persuasive:

  • Common knowledge that fatigue and mental exhaustion from long hours could lead to accidents, especially as employee’s role involved knives and heavy weights;
  • He was entitled to receive overtime under the Award;
  • He was not a manager or supervisor (so it did not support working additional hours);
  • The hours of the day he was required to work (2 am starts);
  • Quantity of additional hours;
  • Regularity and frequency that additional hours were required to be worked (he was deprived of weekends);
  • No evidence of an industry practice (as Dick Stone failed to show this evidence)
  • Although his co-workers preferred a 50 hour week, did not make it reasonable for this employee; and
  • The employee had no understanding of Award entitlements given he was new to Australia.

The Court found the additional hours beyond 38 hours were not reasonable considering the totality of the factors.

Does this decision mean employees are not allowed to work more than 50 hours per week?

No, the decision simply re-emphasizes existing rules but is a timely reminder of what employers must consider in assessing the reasonableness of additional hours.

It has always been the case that employers wishing to offset outstanding entitlements must do so through a written contract, so employees are aware of how their over-award rate works. Similarly, employers have always had to apply the factors under s 62 of the Fair Work Act 2009 (Cth) to consider what are reasonable additional hours.

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Lessons for Employers

  • Any request for reasonable additional hours needs to pass the test under s 62 of the Fair Work Act 2009 (Cth). Employers must apply the factors each time they are considering what is an appropriate number of hours for each employee.
  • What is ‘reasonable’ for the majority of employees might not be reasonable for every employee taking into account an employee’s personal circumstances.
  • Employers should avoid using a ‘blended rate’, they should always instead opt to do an over-award salary using a properly drafted offset clause.
  • The offset clause must specify all entitlements the salary can be offset against to ensure the ‘contractual principle’ and ‘designation principle’ will apply.
  • Avoid doing an annualised salary arrangement as failure to comply with strict rules under Award will lead to breaches.

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Principal Lawyer and Head of Workplace